Think Tank Calls Satellite Radio Merger Premature
The American Antitrust Institute (AAI) called on regulators to reject the XM-Sirius merger. The think tank provides merger evaluations unusual for their independence. It has opposed other mergers, including AT&T-BellSouth. AAI said “the applicants have not met their heavy burden of demonstrating that the proposed merger is in the public interest… In particular, they have not demonstrated that the rationale for the Commission’s 1997 rule forbidding a monopoly in the satellite Digital Audio Service (DARS) has been undermined by subsequent developments.”
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AAI noted that XM and Sirius don’t contend that they need to combine to survive: “In these circumstances, it is far too early in the specific or likely to increase the merged company’s incentives to lower prices, improve quality, enhance services or offer new products.” AAI also disputed the central market-definition argument that XM and Sirius make: That the merger should be reviewed against the backdrop of a larger market, including MP3 and CD players, not just on concentration in satellite radio.
“The fact that terrestrial radio and other sources of audio entertainment services are substitutes for satellite radio for some people and some uses -- and compete to some extent with satellite radio -- does not disprove the existence of a satellite radio market,” AAI said: “Rather the pertinent question for antitrust analysis is whether these alternatives are sufficiently substitutable that it would be unprofitable for a satellite radio monopolist to raise its price.”
Sirius CEO Mel Karmazin has repeatedly blasted NAB for paying individuals and organizations to oppose the merger. An AAI official said his group is independent. “There is no connection to NAB,” senior fellow Rick Brunell, author of the paper, told us: “It’s a merger that has received a lot of public attention. We think it’s important. We thought it was important that we offer comments.”
Meanwhile, Janco Partners said XM and Sirius should pay attention to a merger rejection by the FTC. “The FTC announced its intent to block the merger of Wild Oats and Whole Foods, stating that the merger would be anticompetitive and could drive prices higher,” Janco said: “This case comes down to whether Whole Foods and Wild Oats are competing against each other, or with the overall grocery industry. Sound familiar?”
Sirius CFO David Frear contested the conclusions. “The study reflects the 1997 view of the audio entertainment market and fails to recognize that terrestrial radio accounts for 97% of listening,” he said: “The diverse number of consumers who are supporting our merger recognize the competition and choices available today and emerging tomorrow -- quite literally given the launch of the iPhone later this month -- and feel that the combination will strengthen diverse program offerings, improve program choices and lead to lower prices.”